Biden taps Jerome Powell for second term as Fed chair, signaling continuity at central bank
WASHINGTON - During his first term as Federal Reserve Chair, Jerome Powell faced blistering political pressure and an enormous economic crisis. He has confronted an ethics scandal within the central bank and the steepest inflation in more than 30 years.
Despite all that, or perhaps because of it, President Joe Biden on Monday asked the 68-year-old Fed chairman to serve another four-year term. Democrats and Republicans gleefully offered their support.
Powell somehow emerged stronger than ever from the economic, domestic and political convulsions of 2020. He steered the Fed through wild stock market swings, enormous labor market fluctuations and multiple waves of the coronavirus. Biden's confidence in Powell reflects both a White House that wants continuity and a Fed chair who has emerged as predictable in an economy that is anything but.
"Why am I not picking fresh blood or taking the Fed in a different direction?" Biden said in remarks on Monday. "Put directly, at this moment of both enormous potential and enormous uncertainty for our economy, we need stability and independence at the Federal Reserve. Jay has proven the independence that I value."
The challenge ahead is a hefty one. The Fed is looking to encourage more employment, unwind its pandemic-era stimulus and prevent inflation from becoming a permanent feature of the economy. By many measures, the head winds of this moment - rising prices, a great reassessment of work in America, global supply chain backlogs - hardly resemble the trials of the 2020 pandemic recession. This has created a new set of challenges for Powell and his Fed colleagues.
"Before covid, [Powell] did a nice job of bringing the economy to a soft landing with low unemployment in 2019," said Ben Bernanke, who served as Fed chair during the Bush and Obama administrations. "He was very effective in rebuilding the Fed's relations with Congress and keeping legislators and the public informed about what the Fed was doing. He managed the pressure from President Trump extremely well. If covid had never happened, it would have been a very solid performance. And then covid came."
In keeping Powell, Biden also said he planned to elevate Fed governor Lael Brainard, the central bank's only Democrat, to become the Fed's new vice chair. Brainard emerged as the main alternative to Powell for the Fed's top job, in part because of her broad influence on a range of issues, including monetary policy, climate change and banking regulation. She is also a highly-respected PhD economist with years of policymaking experience. If confirmed by the Senate, Powell and Brainard would lead the Fed together.
Precedent might suggest Powell was going to be reappointed all along. For decades, new administrations have reappointed sitting Fed chairs, especially because the Fed is supposed to be insulated from the White House and Washington's political churn.
But that tradition was bucked in 2017 when Donald Trump said replaced then-Fed Chair Janet Yellen and tapped Powell, who was put on the Fed board by former president Obama. But Trump quickly turned on Powell, lambasting him throughout 2018, 2019 and 2020, and alleging that Powell was not doing enough to lower interest rates and make the economy run hot ahead of the president's reelection.
"My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?" Trump tweeted following one of Powell's major policy speeches in 2019.
Powell did not budge under the pressure. Meanwhile, Trump is still fuming. At lunch at the Trump International Beach Resort in Florida about two weeks ago, Trump told others that Powell cost him the 2020 presidential election, according to Steve Moore, a conservative policy analyst who was one of a handful of people at the meeting.
"He was really railing against Powell and said he had undermined everything he was trying to do with tight monetary policy in the last few years of his presidency," said Moore, who was appointed by Trump to the central bank board but withdrew amid scrutiny of his past remarks about women.
Moore said Trump complained that Powell was one of the worst appointments during his presidency. Yet economists and lawmakers from both parties give Powell tremendous credit for his leadership of the Fed during the pandemic. In late March 2020, he led the Fed as it offered tremendous financial support for the economy, a decision that arrested a stock-market free fall and helped stem a wave of layoffs and corporate closures.
Plus, there was never an organized campaign against Powell. If anything, his most vocal opponents came from progressive groups and lawmakers who argued Powell was too lax on banking regulation and climate issues.
In 2020, the coronavirus pandemic dealt a catastrophic blow to the economy, with 20 million people abruptly losing their jobs in April and wide swaths of the global economy effectively shutting down. The Fed responded with full force, slashing interest rates and deploying a range of tools to rescue the financial system. The Fed chairman worked closely with members of Congress from both parties to explain his decision making, helping him earn credibility with lawmakers who were looking to understand the Fed during a time of extreme uncertainty.
Powell also worked well with Trump's treasury secretary, Steve Mnuchin, despite a public clash late last year over emergency lending programs propped up through the Cares Act.
Throughout the pandemic, Powell found himself aligned with many of the Biden administration's views. Powell repeatedly urged Congress not to withdraw stimulus aid too quickly, especially since fiscal policy could target more vulnerable households and struggling pockets of the economy.
Earlier this year, Powell batted away concerns that the Biden administration's $1.9 trillion stimulus package would cause runaway inflation. He has also put a strong emphasis on full employment - especially for communities of color and other groups that have historically been among the last to benefit from a tight labor market.
Perhaps none of that history, though, could have prepared Powell for one of the Fed's biggest scandals in years. In September, two Fed regional bank presidents - Robert Kaplan and Eric Rosengren - exited their posts amid intense scrutiny over their stock-trading behavior during the pandemic.
Those activities spurred an independent investigation by the Fed's inspector general over whether the actions violated ethics rules and the law. The Fed's public perception also took a massive blow, with Powell saying that the Fed's guidelines around financial activity were "now clearly seen as not adequate to the task of really sustaining the public's trust in us."
"No one on the [Fed's policy committee] is happy to be - to be in this situation," Powell said in September.
A few weeks later, the Fed announced a major tightening of its rules overseeing the personal financial activities of top officials. The inspector general investigation is ongoing.
Ultimately, the stocktrading incidents, and Powell's own financial disclosures, did little to rattle support for Powell himself. After Biden's announcement on Monday, Republican and Democrat lawmakers praised Powell's renomination, including the top-ranking officials on the Senate Banking Committee, which vets Fed nominees before a vote of the full Senate. So far, three progressive senators - Elizabeth Warren, D-Mass., Sheldon Whitehouse, D-R.I., and Jeff Merkley, D-Ore. - opposed Powell getting a second term.
Warren first came out against Powell in September, calling him a "dangerous man" for the Fed's moves to gradually ease rules on Wall Street.
"So far you've been lucky," Warren told Powell during a Senate Banking Committee hearing.
Powell sat quietly, waiting for his next questions.